Falling costs, excessive storage in Europe complicate US LNG contracting ambitions

TTF front-month dips to $17 in mid-January

European gasoline storage presently over 80% full

Germany, others look to FSRUs and spot gasoline

US LNG export builders might be dealing with a far much less aggressive contracting market in Europe this 12 months as falling gasoline costs and excessive storage ranges there cool EU nations’ urgency for US provide.

Over the previous six weeks, costs at Europe’s benchmark TTF gasoline hub have misplaced over half their worth, with the front-month contract tumbling as little as the mid-$17/MMBtu space earlier this month, information from S&P World Commodity Insights confirmed.

Tumbling gasoline costs in Europe come as considerations over provide rationing have eased in current weeks, thanks largely to excessive gasoline storage ranges and a spate of voluntary demand curtailments by end-users. In response to information from Gasoline Infrastructure Europe, storage ranges in Europe at the moment are at simply over 80% full as of mid-January — a wholesome stock that compares with year-ago inventory ranges at nearer to 45%.

“EU storage is on tempo to exit the winter roughly 50% full, [twice] the degrees final 12 months, decreasing the 2023 name on LNG,” stated Morgan Stanley lead analyst Devin McDermott in a Jan. 6 notice to buyers.

With Europe’s gasoline market successfully on “secure” footing this winter, in line with European Fee President Ursula von der Leyen, member nations’ perceived urgency for US-contracted provide might ease this 12 months.

Contracting

In 2022, Europe took renewed curiosity in US LNG amid mounting provide considerations tied to Russia’s practically year-long warfare in Ukraine, and Russia’s ongoing reduce in gasoline pipeline exports to EU member nations.

Final 12 months, European utilities and end-users signed on for over 9 million mt/yr in new long-term provide from US LNG exporters and builders — stepping up provide commitments from 2021 when European patrons closed on provide offers totaling simply over 6 million mt/yr, S&P World information reveals.

With many European international locations nonetheless dedicated to carbon-reduction targets and different environmental targets, patrons there have been extra reluctant to signal on for long-term LNG provide, making final 12 months a standout for US LNG contracting in Europe, regardless of the continent’s stepped-up provide considerations.

“What’s clear from the present wave of contracting is that European utilities are nonetheless comfy paying an LNG spot worth as a result of they do not need to have that long-term contract,” Ross Weyno, LNG lead quantitative analyst for S&P World, stated just lately.

Imports

As Europe’s gasoline costs proceed pulling again from report highs at over $90/MMBtu final 12 months, and with continental storage in strong territory, many European patrons might now be seeking to FSRUs and spot gasoline purchases as a bridge to Europe’s eventual low-carbon future.

In Germany, for instance, long-stalled ambitions to diversify the nation’s gasoline provide took on new which means following Russia’s invasion of Ukraine and its subsequent reduce to pipeline exports. Already this winter, Germany is getting ready to start commissioning work on its first floating LNG terminal, with one other 5 import initiatives already underneath growth.

Even in Europe’s spot gasoline market, the pull on US LNG might wane this 12 months — particularly because the 2022 winter provide crunch continues to ease.

Already this month, the proportion of US cargoes focusing on European locations has pulled again modestly as demand from end-user in East Asia start choosing up amid a nascent reopening in China. In response to S&P World’s newest export information, about 64% of US cargoes already exported this month are destined for Europe — down from over 70% in fourth-quarter 2022. Exports to Asia, in the meantime, have ticked up. In January, roughly 29% of US cargoes already exported are destined for international locations in East Asia, together with China, Indonesia, Japan, Singapore, South Korea, Taiwan and Thailand. In This fall, Asia’s proportion of US exports averaged simply 22%.

Wanting forward, as China’s financial system continues to open, the nation might see a rise in LNG demand this 12 months, together with different imported fuels.

“Traditionally, China has been an lively purchaser of uncommitted spot LNG. Final 12 months, nevertheless, China’s imports have been roughly equal to its … contracted provide. Wanting into 2023, we see a ten mt (+16%) rise in Chinese language demand [year on year],” Morgan Stanley analyst McDermott stated within the Jan. 6 investor notice.